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GETTING TO ZERO

Renewed Importance: How investing in renewables cuts energy bills

How renewables increasingly deliver lower costs for consumers and industry.
Alex Luke
March 20, 2022
Renewed Importance: How investing in renewables cuts energy bills

As this analysis shows, those who seek to pin the blame on the net zero agenda for the current energy price crisis are mistaken. The UK’s investment in renewables supported by the Contracts for Difference scheme is now helping to limit the damage of skyrocketing gas prices, and will insure consumers against any future spikes by saving them money on their bills.

Alex Luke, Senior Researcher at Onward

 

Renewables are now helping to offset increases to energy bills and save consumers money.

The UK’s investment into renewables in recent years is beginning to pay dividends, especially in the context of the current energy price crisis. Renewables are now significantly reducing the UK’s dependence on gas, while projects supported by the Contracts for Difference (CfD) scheme are now saving consumers money on their energy bills.

Energy prices have skyrocketed over the past year, resulting in Ofgem increasing the Energy Price Cap by 54% in April to £1,971 per year for a typical household. With further fallout likely as a result of sanctions placed on Russia following its invasion of Ukraine, the cost of living, and in particular the cost of energy, will dominate this year’s political agenda.

This energy crisis has precipitated an intense debate about the future of UK energy policy, with some blaming the UK’s investment in renewables and the wider net zero agenda for driving costs up. They argue for the abolition of so-called ‘green levies’ on energy bills, which are used to fund renewables through the CfD scheme and Feed-in Tariffs, as well as energy efficiency measures.

But how accurate is it to say that renewables subsidies contribute additional costs to household bills? Are taxpayers still subsidising a nascent market, or do renewables now save customers money?

  • The vast majority of the current energy price crisis has been driven by the UK’s
    exposure to rising gas prices. However, renewables are already making a significant contribution towards reducing the UK’s dependence on gas and other fossil fuels. In 2021, renewables were responsible for 29% of the electricity generation in the UK. This alone displaced around £6.1 billion worth of gas, equivalent to £221 of gas per household.
  • CfD-supported renewables are helping to offset the energy price crisis. From November 2021 to January 2022, CfDs paid back £114.4 million to energy suppliers. Since September, the CfD levy paid by consumers has been set at £0. If this rate of payback is maintained over a year, then the average household will save £6.46 as a result of CfD projects beginning to pay back.
  • CfD-supported renewables will also insure consumers against future spikes in energy prices. Once further projects come online by 2027, CfDs for intermittent renewables like wind and solar will be paying back £10.49 billion a year to customers at current electricity prices – saving each household £97.53 per year. These savings would also increase with any further increase in the electricity demand.

Whatever steps are taken to assure energy security in the short term, now is not the time to divest from renewables or to delay the transition to cleaner energy sources. Renewable energy increasingly delivers lower costs for consumers and industry. If ministers want a way out of the current crisis, it lies in doubling down on current policy rather than diluting it.

 


 

This report is produced as part of our Getting to Zero research programme.

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